Yes, California has a state income tax, and it is one of the highest in the country

California taxes income earned by residents and people who work in the state. Unlike some states that have no income tax at all, California uses income tax as a major source of state funding. The tax rate depends on how much you earn — California uses a progressive system where higher earners pay a higher percentage.

The state also taxes capital gains (profits from selling investments), retirement account withdrawals in certain cases, and other forms of income beyond wages. If you live in California or work there, you will file a state tax return in addition to your federal return, usually at the same time.

Key Takeaways

  • California's income tax rates range from 1% to 13.3% depending on your income level, with the highest rate applying to the wealthiest earners.
  • You must file a California state tax return if you earn income in the state or live there, even if you owe no tax.
  • California taxes wages, self-employment income, retirement distributions, and capital gains, though some retirement income has special rules.
  • The state offers tax deductions and credits similar to federal ones, including the Earned Income Tax Credit (EITC) for lower-income workers.

How California's tax brackets work

California divides income into brackets, and you pay a different rate on each bracket rather than one flat rate on all your income. For the 2024 tax year, rates start at 1% on the lowest bracket and climb to 13.3% on income over a certain threshold. The exact dollar amounts for each bracket change yearly based on inflation.

The brackets are steeper at the top than in most other states. California's top rate of 13.3% kicks in at a lower income level than many people expect, and it applies to all income above that point — not just a small portion. This means a high earner in California pays significantly more in state tax than a high earner in a state with no income tax or a flat rate.

Your filing status (single, married filing jointly, head of household) determines which bracket you fall into. Married couples filing jointly have wider brackets than single filers, so the same income may be taxed at a lower rate.

What types of income California taxes

California taxes wages and salaries — the most common form of income. Your employer withholds state tax from your paycheck, similar to federal withholding. If you are self-employed, you owe state tax on your net business income and must pay it through estimated tax payments or when you file.

Capital gains — profits from selling stocks, real estate, or other investments — are taxed as ordinary income in California, not at a special lower rate. This is different from federal tax, where long-term capital gains often receive preferential rates. A $50,000 profit on a stock sale is taxed the same way as a $50,000 salary.

Retirement income has mixed treatment. Social Security benefits are not taxed by California. Withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income. Distributions from Roth IRAs are generally not taxed. Pension income is taxed unless you are over 55 and the pension is from a public employee retirement system.

Interest, dividends, rental income, and gambling winnings are also taxable. Some types of income — like gifts and life insurance proceeds — are not taxed.

Who must file a California tax return

You must file if you are a California resident or part-year resident with income above a certain threshold. The threshold varies by age and filing status. For 2024, a single person under 65 must file if they earned more than roughly $20,000 in income; the threshold is higher for those 65 and older and for married couples.

Even if your income is below the filing threshold, you should file if you had taxes withheld from your paychecks or made estimated tax payments — you may be due a refund. You must also file if you owe self-employment tax or want to claim the California Earned Income Tax Credit.

Part-year residents — people who moved into or out of California during the year — must file a California return for the months they lived in the state. You will report only the income earned while you were a resident.

Tax deductions and credits available in California

California allows a standard deduction similar to the federal one, or you can itemize deductions if they are higher. The standard deduction amount changes yearly. Most people use the standard deduction because it is simpler and often results in a lower tax bill.

The California Earned Income Tax Credit (CalEITC) is a refundable credit for lower-income workers. You can receive money back even if you owe no tax. The credit amount depends on your income and filing status. Unlike the federal EITC, California's version does not require you to have a may have access to child, so more workers may be able to claim it.

California also offers credits for dependent care expenses, education costs, and other situations. Some credits are refundable (you get money back if the credit exceeds your tax) and others are non-refundable (they can only reduce your tax to zero).

How to file your California state tax return

You file your California return using Form 540 (the main return) or Form 540-2EZ (a shorter version for simple situations). You can file on paper by mail or electronically through the California Franchise Tax Board website or approved tax software. E-filing is faster and reduces errors.

The deadline to file is the same as the federal deadline — usually April 15. If you cannot file by then, you can request an extension, though you still owe any taxes due by April 15 or face penalties and interest.

If you use tax software or a tax preparer, they will typically file both your federal and state returns at the same time. Make sure your software is set to include California if you live there or earned income there.

Frequently Asked Questions

Do I pay California state tax if I work in California but live in another state?

Yes, California taxes income earned within the state regardless of where you live. If you work in California and live elsewhere, you file a California part-year resident return for the income earned in California. You may also owe tax to your home state, though most states offer a credit to avoid double taxation.

Is Social Security taxed in California?

No. California does not tax Social Security benefits, even if your total income is high. This is one of the few income sources that receives preferential treatment under California law.

What happens if I do not file a California tax return?

The Franchise Tax Board can assess penalties and interest on any unpaid tax. If you are owed a refund, you generally have four years to claim it before the state keeps the money. Filing even when you owe nothing protects your refund and avoids penalties.

Can I deduct federal taxes paid on my California return?

No. California does not allow a deduction for federal income taxes paid. You can deduct state and local property taxes and sales taxes up to $10,000 combined, but federal income tax is not deductible.

How do I know if I am a California resident for tax purposes?

You are a resident if you live in California with the intent to make it your permanent home. The state looks at factors like where you own property, where your family lives, and where you maintain a driver's license. If you moved during the year, contact the Franchise Tax Board or a tax preparer to determine your residency status.